Oct 04, 2023
A Guide to Closing With Success
At Pearce & Associates we have helped hundreds of business owners with asset based business liquidations over the years. We have assisted with business types including marble & stone countertop companies, roofing companies, hardware stores, machine shops, printing companies, trucking companies, and that is only to name a few. These business owners decided to close for a number of reasons ranging from retirement, changing market conditions, or pursuit of other opportunities. Regardless of the reason for closure, the liquidations that go the smoothest are typically due to the business owner having a well thought out exit strategy in place. For the purposes of this article, an asset based business is any business that relies on physical inventory to conduct business functions. To take an example from above, a hardware store relies on equipment like forklifts and trucks to conduct business. They are also stocked with inventory such as power tools, plumbing and electrical materials, lumber, & all of the other assets necessary to draw customers and turn a profit. Business owners of asset based businesses do not have the luxury of just turning off the lights and locking the doors when they are ready to close, they have to deal with all of these assets! In this article we will discuss the importance of having an exit strategy, the types of exit strategies, and some important things to keep in mind as you consider your exit strategy for your asset based business.
The Importance of an Exit Strategy
Maximizing/Preserving Asset Value
Having a well thought out plan in place is the best way to ensure that you will maximize the value of your assets during your closure. If you are considering selling your business as an operating entity, then diligently implementing and documenting business processes and protocols is vital to attracting a buyer at the best price. If considering total asset liquidation, it is important to understand that a blowout closure sale will have a negative impact on all asset values. Deciding on an exit strategy in advance will give you the ability to continuously plan for the exit with the best chance of maximizing the value of your assets.
Legal and Financial Considerations
Business closure of any kind comes with many legal and financial implications. Understanding your exit strategy will give you the opportunity to address pitfalls & opportunities ahead of time with your financial, legal, and tax professionals.
Common Exit Strategies for Asset Based Businesses
Selling the Business as an Operating Entity
Business owners may wish to sell their business to a buyer who will continue the business operations. This can be a great option for a successful business with well established business systems and operations. These make transition to new ownership seamless, which in turn makes the business more valuable.
Mergers & Acquisitions
This is almost identical to selling the business as an operating entity, but in the case of mergers and acquisitions it is typically a much larger company that is buying the business. If this is an exit strategy that is attractive to you, it is important to do research on what the key ingredients are for a successful merger/acquisition. These larger companies may place more importance on certain aspects of your business than a standalone buyer.
Partial or Total Liquidation
In a partial or total liquidation, business owners are choosing to sell all or some of the assets in their business to one or multiple buyers. If handled by a professional company, like a reputable auction firm, this can be one of the most effective ways to maximize the value of your business assets. This option can provide a fast, effective, and hassle free exit.
Pass the Business On
This is a fantastic option if the business owner is lucky enough to have a family member or employee who they trust to continue running the business in a way they would be pleased with. Business owners can work with their legal and financial professionals to draw up documents that will result in a transfer that best fits everyones needs. One of the biggest benefits of this exit strategy is that ability to structure the transfer in many different ways from an outright purchase to a royalty set up.
Important Things to Consider When Developing Your Exit Strategy
Complete an Inventory of Assets
This is likely something you already have prepared. No matter which exit strategy you choose, a detailed inventory will make the process go much more smoothly. This inventory list should include equipment, inventory, real estate, intellectual property, and any other assets that are important to the success of your business.
Consult with your financial professionals to discuss and handle all outstanding debts, contracts, and obligations.
Legal and Regulatory Compliance
Consult with your legal professionals to ensure you are complying with all regulations for business closure including the necessary paperwork and tax documents. This will ensure a smooth exit without legal complications.
Distribution of Proceeds
Whether you decide to sell the business as an operating entity or to conduct a total liquidation, it is important to consider and establish how the proceeds will be distributed to all parties involved.
Once you have successfully exited the business, make sure to complete all of the necessary documentation to dissolve the business. This includes cancellation of licenses, permits, & contracts. This will depend on which exit strategy you chose.
Exiting an asset based business comes with its own set of complications and hurdles. Taking the time to consider and establish an exit strategy can make the process much easier, time efficient, and successful. The exit strategy that will work for each business/business owner will change, but many of the basic principles can be applied. Whether you are considering retirement, pursuit of a new venture, or an exit for another reason an exit strategy ensures that you are able to exit the business on your terms.